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Problem 1 (See pages 126-145) A new health monitoring devise has been developed by Medical Electronics Corporation. It is estimated that variable operating costs will
Problem 1 (See pages 126-145) A new health monitoring devise has been developed by Medical Electronics Corporation. It is estimated that variable operating costs will be 80% of sales (or $22 per unit), while fixed operating costs will be $93,500,000. The first year's sales estimates are 30,000,000 units at $27.50 per unit. The cost of the manufacturing facility was financed with debt at 5.2%. Interest expense for the first year is expected to be $10,300,000. Assume an income tax rate of 20%. The company will not develop or sell any other product soon. (PLEASE SHOW YOUR WORK). a) Construct Medical Electronics Corporation's projected income statement for the first year of operation (complete the following table). Sales Less: Variable operating costs Fixed operating costs Earnings before interest and taxes (EBIT) Less: Interest expense Earnings before taxes (EBT) Less taxes (20%) Earnings after taxes (EAT) b) Compute and interpret the first year expected degree of operating leverage (DOL) c) Compute and interpret the degree of financial leverage (DFL) d) Compute the Operating Break-even point in dollars
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